We recently published a list of Top 10 Trending AI Stocks to Watch. Since Qorvo Inc (NASDAQ:QRVO) ranks 10th on the list, it deserves a deeper look.
Wall Street continues to gain momentum amid the latest earnings season and analysts are wondering whether we are still up for soft landing. Mohamed El-Erian, Allianz chief economic advisor, talked about the possibility of a soft landing vs no landing during a program on CNBC. When asked what would it take for the market to have a no-landing scenario, the analyst said:
“I think we need the productivity enhancers from A.I., from life sciences to come earlier, we need to continue to have positive shocks to our labor force. And if we get those two things, you can get the bigger but not hotter economy which actually would be perfect for almost everything you can think of, from households to companies to financial markets.”
The analyst does not rule out the possibility of a recession, however.
“My probability of a soft landing is 55%, and a recession is 30%. A soft landing is the most likely scenario, but it’s not dominant. Why isn’t it dominant? Because we have weakness in the household sector, particularly on the lower-income side, and the Fed has been unpredictable. Just think, Morgan—at the end of July, the Fed didn’t cut rates because everything seemed fine. By the next meeting in mid-September, it cut 50 basis points. And now it’s talking about cautious cuts. So, the Fed needs to be careful.”
For this article we picked 10 trending AI stocks based on latest news. With each company we have mentioned its hedge fund sentiment. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A close up of a highly advanced mobile device with the company’s branding visible.
Qorvo Inc (NASDAQ:QRVO)
Number of Hedge Fund Investors: 37
Qorvo (NASDAQ:QRVO) was recently downgraded by Morgan Stanley. The firm cited “limited upside” and a lack of near-term catalysts for the move. Analyst Joseph Moore explained that weak conditions in the Android supply chain and broader market challenges are limiting the Qorvo Inc (NASDAQ:QRVO)’s expected gross margin recovery. While maintaining a positive long-term view, Moore sees a balanced risk-reward scenario for the next few quarters.
“We see limited upside near term around a weaker Android supply chain and weak broad market conditions, which is limiting the gross margin recovery that we have been looking for,” Moore wrote in a note to clients. “We remain constructive longer term, but see a balanced risk reward over the next couple of quarters.”
As a result, Moore downgraded Qorvo Inc (NASDAQ:QRVO)’s rating from Overweight to Equal-Weight and reduced the price target from $130 to $120. He noted that although artificial intelligence (AI) at the edge could boost the smartphone cycle, Qorvo Inc (NASDAQ:QRVO) is unlikely to be a significant beneficiary at the outset.
“Apple Intelligence looks to be the initial Edge AI winner, and our US hardware team has high conviction this will [lead] to a multi-year upgrade cycle,” Moore continued. “While Qorvo is committed to increasing exposure to Apple (AAPL), they are underrepresented in the iOS ecosystem and are still primarily seen as an Android play. Since Edge AI is expected to initially be in the premium tier, where we expect Android to lose share next year, we are less excited about Edge AI as a catalyst for Qorvo.”
Qorvo Inc (NASDAQ:QRVO) is a semiconductor and wireless products company. Apple is its biggest customer. Qorvo has made progress on several fronts, such as reducing operational inefficiencies linked to manufacturing smaller wafer diameters and transitioning to larger formats, culminating in the migration to 8-inch BAW (Bulk Acoustic Wave) technology in FQ1.
However, there are many risks to Qorvo Inc (NASDAQ:QRVO), including its dependence on China.China accounts for about 19% of its revenues. This dependence could become detrimental if 60% tariffs are imposed on Chinese goods after the November U.S. elections, potentially triggering a tit-for-tat response from Beijing that would make Qorvo Inc (NASDAQ:QRVO)’s products more expensive.
Qorvo Inc (NASDAQ:QRVO) is also competing with giants like Broadcom (AVGO) and Qualcomm (QCOM), which are also integrated device manufacturers (IDMs) that produce some of their connectivity chips. This sector has become increasingly commoditized, leading to more price-based competition.
Vulcan Value Partners stated the following regarding Qorvo, Inc. (NASDAQ:QRVO) in its Q2 2024 investor letter:
“Qorvo, Inc. (NASDAQ:QRVO) is a leader in radio frequency (RF) systems and power management solutions for mobile devices, wireless infrastructure, aerospace and defense, the Internet of Things, and various other applications. Qorvo’s chipsets are a small cost but are critical components in modern mobile devices. As data needs increase and telecommunications technology continues to evolve and become more complex, more RF content is needed in each device. The complexity and barriers to entry intensify as content requirements increase and space constraints become more pronounced. Qorvo operates in an oligopoly with only a small number of companies capable of producing these increasingly complex chipsets at scale. Qorvo should also benefit as growth accelerates in adjacent markets and these markets eventually become a larger piece of the business through the adoption of the Internet of Things, satellite, Wi-Fi, and other markets. The company has faced headwinds over the past few years including lower demand in China, excess inventory in the channel, and factory underutilization; but secular tailwinds should drive growth and, in turn, margin expansion.”
Overall, Qorvo Inc (NASDAQ:QRVO) ranks 10th on Insider Monkey’s list titled Top 10 Trending AI Stocks to Watch. While we acknowledge the potential of Qorvo Inc (NASDAQ:QRVO), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than QRVO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.